Defined contribution

6 things to look for in a target date fund

May 9, 2016
By BlackRock

1. Consistency

401(k) investors need to stay the course to get the benefit of the fund's diversification. That's why LifePath funds are designed to manage risk in a broad range of market environments:

Target Date Funds provide consistency

2. Shock absorbers

Market shocks can drive investors to the sidelines, leaving them out of position for potential recovery. LifePath is managed to limit shocks and reduce outflows.

Target Date Funds act as shock absorbers

3. The right investment mix

Target date funds differ in how they reduce investment risk from early savings to later career and beyond.

Target Date Funds provide the right investment mix

4. Optimized portfolio design

Morningstar recently praised LifePath Index's “forward-thinking, research-intensive approach.”4 Each LifePath Index vintage uses efficient-frontier optimization, with the goal of achieving the highest potential return for the level of risk and is diversified across approximately 13,000 securities that include small-cap stocks and both U.S. and international real estate investment trusts.

Target Date Funds provide an optimized portfolio design

5. Low cost

LifePath Index “boasts a substantial cost advantage,” Morningstar says, noting that its "0.18% asset-weighted cost comes in nearly 60 basis points below the industry average."4 All things being equal, employees who invest in lower cost funds keep more of their earnings — and may end up with higher account balances.

Target Date Funds: weighted cost vs. industry average

6. Best in class

LifePath Index is one of only two target date fund series — out of 42 total active and index target date funds — to achieve Morningstar’s highest rating.5 Investors would be hard-pressed to find a crack in this series’ armor that makes it vulnerable as a long-term strategy, Morningstar says.